While no one can debate that the USA network marketing industry is changing, the debate continues on about what the changes will bring.
Given the size of the industry only a very small fraction of companies have been directly affected by regulators, yet many companies are nervous it could be just the beginning. Based on the precedence recent actions have set, the industry, as a whole, may have serious reason to be nervous.
Given the respected and well run companies that have been recent targets of the FTC, company owners and field leaders know it’s just a game of Russian Roulette to who could be next.
This article is not to debate the politics of why the FTC is cracking down on the industry or any company specifically, but rather to look at what they are using as ammunition in their fight. The argument is primarily about one thing- customers, that is someone who purchases from a company solely for the purpose of using or consuming the company’s products or services with no concern for a business opportunity.
The legitimacy of a company is being determined in many respects by this one factor. On one hand there may be sound logic to this assertion. To illustrate, think of a restaurant where there are more waiters and cooks earning wages than patrons. It stands to reason the restaurant would be out of business in short order- even if the waiters and cooks were buying their meals at the restaurant.
Don’t misunderstand this point as agreeing outright with the FTC’s position on all topics related to the industry but after all the opining is done the customer issue is straight forward and hard to argue against – a broad base of diverse customers brings stability to any business. The rapid rise and disastrous crashes of once notable network marketing companies have shown us the industry is not immune to this rule.
At the end of the day the FTC doesn’t care that commissions are paid on the sale of products or that networks are built of people earning overrides on the efforts of others. They care about the ratio of sales by real customers. If in fact customers bring stability to companies and organizations than shouldn’t responsible owners, operators, and network marketing professionals should care deeply about the validity of their customer base, regardless of regulatory pressures?
After reviewing in detail the points the FTC continues to raise, there are several identifying characteristics of companies that could be in the danger zone for regulatory targeting.
- For years companies have used their compensation payout percentage as a competitive argument in an attempt to sway distributors to join what appeared to be a more lucrative opportunity. The real competitive discussion should be about the percentage of payout coming from customer sales. This seems to be the heart of the issue with regulators and the only true safe ground.
- “Wholesale” pricing in network marketing is a fallacy in the industry no one wants to admit. The reason companies that have a tiered pricing strategy become targets for regulators is that it has become a tool to entice someone who genuinely might be interested in simply buying the product to join as a distributor or a member signifying to regulators this is the primary focus of the company. If we’re being honest most companies claim that distributors can mark up product and keep the difference in a retail sale. This is another fallacy in traditional MLM. The percentage of distributors who have ever marked up product from the “wholesale’ price and actually made a customer sale is a fraction of 1%. Regulators target companies claiming to have a customer acquisition opportunity but in fact do not.
- Companies with compensation plans that primarily reward those who recruit others to participate in the business are prime targets for regulators. Most compensation plans have a few token bonuses for customer referrals, but a balanced compensation plan has successful distributors doing primarily customer acquisition as well as those finding success in recruiting and team building. On the topic of compensation, another red flag is compensation plans that do not pay commissions on customer sales to the referring distributor unless the distributor has surpassed a certain threshold of customer volume. Beyond the commission plan, companies that do not have titles, recognition programs, or ranks purely for customer acquisition generally reflect a low priority on customer acquisition by the company and its management.
- Arguably the single biggest indicator to regulators of if a company is primarily focused on recruiting distributors is if the company’s marketing is targeted to prospective distributors vs prospective customers. The litmus test of this characteristic is manifest by the company’s website. When a regulator visits the company “.com” if they find any opportunity messages focused on income, compensation, lifestyle they have made themselves prime targets. If it is difficult to purchase the product without having a distributor referral or the site does not act and feel like an e-commerce site this is another sign to regulators the company is not interested in consumers as much as recruiting distributors.
Industries go through changes. This is nothing new. The network marketing industry has been under intense scrutiny before, and it has survived. The industry will survive again. However, this may give us an opportunity to step back, if only for a moment, and consider how the industry has evolved in recent decades. Does it feel more stable and legitimate now than it did 10, 20, or 30 years ago?
Maybe it’s time for a disruption, or better put, a renaissance. Let us band together to defend our great industry against politics that could harm it, but let’s not do it in ignorance. Let’s ask what can be learned and how can we become stronger as a whole. One thing is certain, change is happening, but change is not always a bad thing.
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